VALUE: After Hours (S08 E13): Why Global Small Cap Value Could Outperform the S&P by 25% Per Year

During their recent episode, Taylor, Carlisle, and Mark Cooper discussed Why Global Small Cap Value Could Outperform the S&P by 25% Per Year. Here’s an excerpt from the episode:

I don’t know the answer. And I don’t think anybody knows the answer to that, obviously. So we kind of look at it and say, historically, it’s mean reverted in three to five years.

What if we look at 10 years? And frankly, we choose 10 because it’s, I don’t know, nice round number. But the numbers are insane if you look at it on a shorter term basis, it sounds even more unbelievable.

But international small and value, if those factors are mean revert to their long term average, which we think they will, would suggest that international small and value would outperform the S&P by about 25% per year for the next 10 years to get to the long term average.

[Jake] Now- Mark, you’re filling Toby’s head with all kinds of confirmation. Absolute fireworks going on over here.

[Mark] It sounds crazy, but the math is, again, I don’t think you can dispute the math. You can say it’s not going to mean revert, that’s fair. But the math is pretty clear.

And we’ll share the data series with anybody. You can look at the data series and that’s pretty clear. Now, a lot can happen, a lot can change it.

What I would also say is that if you assume that the S&P does zero, which we kind of assume, or maybe 5%, which is like the most bullish 10 year forecast we’ve seen of any of the large investment banks is 5% a year for the next 10 years. So 5% a year would be about 62% if you compound that out for 10 years, total return for the S&P. And again, our starting point today, valuations about as high or as high as it’s ever been would be suggestive of a market that has zero total return or maybe negative, probably with a big drawdown at some point in the middle.

And we agree with that. If the market were to do 5% and compound total return 62% over 10 years, that would imply that a long only investor in international small cap value, just with those exposure to those factors could expect about a 30% per year gross return.

[Tobias] That’s acceptable. That’ll do.

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VALUE: After Hours (S08 E13): Why Global Small Cap Value Could Outperform the S&P by 25% Per Year

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